Make-In-India: Mining Sector

Mining sector is one of the core sectors of economy. It provides basic raw materials to many important industries.

Mining sector (including fuel, atomic, major and minor minerals) contributed about 2.4% of GDP in 2014-15 as per the data released by Central Statistical Organization under Ministry of Statistics & Programme implementation.

India is a mineral rich country and has favourable geological milieu which is yet to be fully explored, assessed and exploited. Its geological setup is similar in many ways to that of resource rich countries like Canada, Australia, Brazil, South Africa, Chile and Mexico etc. Exploration activities in India are mostly carried out by Geological Survey of India (GSI), Mining Exploration Corporation Limited (MECL), various State Directorates of Geological Mining (DGMs), public sector undertakings (PSU) and private sector entities both domestic and subsidiaries of many global companies.

India total land area 3.2875 million sq. km out of which, GSI has identified 0.571 million sq. km. as Obvious Geological Potential (OGP) area for minerals.

Obvious Geological Potential (OGP) Area

Mineral

Area (sq. km.)

Gold

1,02,809

Diamond and Precious Stones

3,00,000

Base Metals

1,81,150

Platinum Group of Elements

8,130

Iron ore

5,135

Manganese ore

4,600

Chromite

2,690

Manganese

6,000

Tin and Tungsten

1,300

Bauxite

32,520

The Mines & Minerals (Development & Regulation Act), which governs the mineral sector, has been amended recently, by the Government. The amendment removed discretion by instituting auction to be sole method of grant of major mineral concessions and, thereby bringing in greater transparency. It also provided the much-needed impetus to the mining sector by deemed extension of mining leases.

India has a liberalized FDI up to 100% in mining under automatic route

Transferability of captive leases, allowed by recent amendment in MMDR Act in 2016.

REASONS TO INVEST

​Ease of doing business

Mineral concessions (Mining Lease & Prospecting Licence cum Mining Lease) grant to be done through auctions for the companies interested in mining or for the raw material for their downstream industry.

An Inter-ministerial Group facilitator constituted for expediting the clearances and approvals

Exploration companies can venture into the revenue share model being formulated for exploration of blocks identified by GSI. This has been enabled by the National Mineral Exploration policy, 2016 announced in July, 2016. About 100 blocks have already been identified by GSI for auctioning.

India has vast mineral potential with mining leases granted for longer and stable tenure of 50 years.

The demand for various metals and minerals will grow substantially over the next 15 years.

India’s strategic location enables convenient exports.

India’s per capita steel consumption is four times lower than the global average.

STATISTICS

India produces as many as 88 minerals which includes 4 fuels minerals, 3 atomic minerals, 26 metallic & non-metallic minerals and 55 minor minerals (including building and other materials).

INDIA’S MINERAL PRODUCTION

Mineral

India’s Production

India’s rank

India’s Reserves

India’s Rank

Iron Ore

6 %

4th

4 %

6th

Manganese

5 %

6th

8 %

5th

Bauxite

5 %

6th

3 %

8th

Chromite

14 %

3rd

12 %

3rd

Barytes

19 %

2nd

13 %

2nd

Zinc

6 %

6th

5 %

5th

Talc

15 %

2nd

8%

6th

GROWTH DRIVERS

​With the Indian economy expected to grow by approximately 7% in the years to come, sectors such as infrastructure and automobiles will receive a renewed thrust, which would further generate demand for power and steel in the country. This is expected to provide a major thrust to the demand of minerals like coal and iron ore.

The growth in the mining sector in terms of production of minerals has significantly improved in comparison to recent past. It is pertinent to recall that the sector recorded a negative growth of 0.6% for two consecutive years (2011-12 and 2012-13).

There has been a notable turn around ever since government has taken initiative for policy reforms. This turnaround is very much visible in terms of growth in Gross Value Added (GVA) in mining and quarrying sector. The sector grew by 5.4% and 2.4% in 2013-14 and 2014-15 respectively. During 2015-16, so far the sector has recorded a growth of 3.6% in comparison to similar period last year.

The results of Index of Industrial Production for 2015-16 up to the month of Mar, 2016 indicate that during the period, mining and quarrying segment showed an increase of 2.2% in comparison to same period last year.

There is a noticeable surge in mineral production in India. Production of major minerals during the current financial year up to March has recorded the growth of 9 % in comparison to same period last year. The real contributor to this growth have been Bauxite (27%), Chromite (33%), Copper Conc. (30%), Iron ore (21%) and Lead Conc. (32%) in the metallic segment. This growth story is significant as international commodity market is in state of turmoil owing to weak signals coming from the Chinese economy.

Minerals like manganese, lead, copper, alumina are expected to witness double digit growth in the years ahead. There is significant scope for new mining capacities in iron ore, bauxite, and coal.

India has an advantage in the cost of production and in conversion costs of steel and alumina.

Sustained growth in India’s automotive sector has been driving demand for steel and aluminium.

Mining and Exploration of metal and non-metal ores including diamond, gold, silver and precious ores but excluding titanium bearing minerals and its ores; subject to the Mines and Minerals (Development & Regulation) Act, 1957.

Coal & Lignite

Coal & Lignite mining for captive consumption by power projects, iron & steel and cement units and other eligible activities permitted under and subject to the provisions of Coal Mines (Nationalization) Act, 1973.

Setting up coal processing plants like washeries subject to the condition that the company shall not do coal mining and shall not sell washed coal or sized coal from its coal processing plants in the open market and shall supply the washed or sized coal to those parties who are supplying raw coal to coal processing plants for washing or sizing.

FDI upto 100% under Government route is allowed in:

Mining and mineral separation of titanium bearing minerals and ores, its value addition and integrated activities subject to sectoral regulations and the Mines and Minerals (Development and Regulation Act 1957).

SECTOR POLICY

​The MMDR Act, which governs the mineral sector, has been amended recently, by the Government. The amendment removed discretion by instituting auction to be sole method of grant of major mineral concessions and, thereby bringing in greater transparency. It also provided the much-needed impetus to the mining sector by deemed extension of mining leases.

DMF: District Mineral Foundation (DMF) to address the long time grievance of the people affected by mining and in turn improve the image of the mining sector.

NMET: National Mineral Exploration Trust (NMET) for incentivizing regional and detailed exploration to fill the gaps in exploration in the country.

Mining Leases for 50 years and even the existing leases deemed extended eliminating any renewals for security of tenure.

To promote conducive environment for trade, stronger penal provisions for checking illegal mining with higher penalties up to USD 7692.30 per hectare of the area and jail term up to 5 years

National Mineral Exploration policy, 2016 announced in July, 2016. About 100 blocks have been identified by GSI for auctioning on revenue sharing mechanism for regional exploration to encourage private participation in exploration. The bidders would be protected by way of entitlement for a normative cost in the event unsuccessful outcome after exploration. The mechanism is being formulated in consultation with the stakeholders.

FINANCIAL SUPPORT

KEY PROVISIONS OF THE 2015-2016 UNION BUDGET:

The export duty on Iron ore fines with Fe content below 58% has been reduced from 10% to nil;

Iron ore lumps with Fe content below 58% reduced from 30% to nil.

Export duty on Bauxite has been reduced from 20% to Nil.

Custom Duty on Primary Aluminium increased from 5% to 7.5%

Other Aluminium Product import duty increased from 5% to 7.5%

Bauxite export duty reduced from 20% to 10%.

Zinc alloys import duty 5% to 7.5%

In addition to above, in respect of Chromium ores and concentrate export duty has been reduced from 30% to nil as well.

Basic Customs Duty (BCD) on steel grade limestone and steel grade dolomite is being reduced from 5% to 2.5%.

The variation level and the parameter of measurement with respect to re-import of cut and polished diamonds after certification/grading from a foreign laboratory/agency are being increased as a trade facilitation measure.

Under the existing provisions of Section 35 AD of the Act, an investment – linked tax incentive is available by way of allowing deduction of the whole of any expenditure of capital nature (other than expenditure on land, goodwill and financial investment) incurred wholly and exclusively for purpose of the “specified business” during the previous year in which such expenditure was incurred.

In order to promote investment in new sectors, few more businesses have been added under the above section. Those related to the mining sector are:

Laying and operating a slurry pipeline for the transportation of iron ore.

The above business shall begin operations on or after 01.04.2014. It also has the condition of lock-in period of 8 years for use of assets.

Fiscal Incentives:

One-tenth of the expenditure on prospecting, extraction and production of certain minerals during five years ending with the first year of commercial production is allowed as a deduction from the total income.

Export profits from specified minerals and ores are eligible for certain concessions.

Minerals in their finished form are exempt from excise duty.

There is low customs duty on capital equipment used for minerals on nickel, tin, pig iron and unwrought aluminium.

Each state in India offers additional incentives for industrial projects, related to specific sector. Incentives have been provided in areas such as subsidised land cost, the relaxation of stamp duty on the sale or lease of land, power tariff incentives, a concessional rate of interest on loans, investment subsidies and tax incentives, backward areas subsidies and special incentive packages for mega projects.

INVESTMENT OPPORTUNITIES

​Mineral blocks are being put up for auctions by the States for Mining or Prospecting cum mining, depending on their level of exploration. The grant process is to be completely transparent through a competitive bidding on an e-auction portal. An Inter-ministerial Group, Post Auction Mining Clearances and Approvals Facilitator (PAMCAF) has been constituted which will expedite the requisite clearances to enable the early start of mining activity.

The e-Auctions of Mineral Blocks in the country has been started after the MMDR Amendment Act, 2015-

66 major mineral blocks already notified in 9 States for auction

After the amendment of the act – 7 mineral blocks have been successfully auctioned in the following States-

Minerals with estimated value of USD 4.58 billion disposed of in a transparent manner.

Currently 29 blocks are under auction by different State Governments as on 30 Aug, 2016 and about 50 more mineral blocks will be put up to auction in 2016-17

Under the newly announced National Mineral Exploration policy, 2016, about 100 blocks have been identified by GSI for auctioning for regional exploration. The States to auction the blocks for exploration with revenue sharing mechanism. The bidders would be entitled for a normative cost in the event of unsuccessful outcome. The mechanism is being formulated in consultation with the stakeholders.

Iron & steel:

The iron and steel segment offers a product mix which includes hot rolled parallel flange beams and columns rails, plates, coils, wire rods, and continuously cast products such as billets, blooms, beams, blanks, rounds and slabs as well as metallics and ferro alloy.